There is an old saying “what you measure, grows.”
What’s the most common way that funeral homes measure their success?
Call volume.
This may offend some of you but….for most funeral home owners focusing on your call volume is a mistake.
Before you delete this email and write me off as a quack, give me a minute to explain.
Years ago, at least 90% of your calls were traditional funerals. The business was fairly predictable because there was one large funeral market.
Today, the predictable business model is broken. The overall funeral market has fractured into a bunch of smaller niche markets.
You have cremation calls that can range from a direct cremation for $2,000 or less to a large celebration of life ceremony for $20k.
Your traditional burial calls have split into segments as well. Some families will still choose the traditional two blocks of visitation time. But many more will choose one hour of visitation immediately before the church service.
My point is that your revenue per call varies significantly because the market has split into multiple smaller markets. In this situation, focusing on the number of calls doesn’t make a lot of sense.
So what should you focus on?
Here’s my rule of thumb. If you are under $1,000,000 in annual sales, you should focus on your revenue (i.e., the top line).
If you are over $1,000,000 in sales, you should focus on net profit (i.e., the bottom line).
When you are under $1,000,000 in sales, the owner is typically in what I’ll call “hustle mode”. You literally have to hustle every day to win the next call and hope that the revenue is enough to make payroll, pay taxes, pay the mortgage, or the dozens of other bills hanging over your head.
Rather than trying to win every possible call in the market you should focus on winning the calls in the segment you want to serve.
If you want to serve the direct cremation market at an average revenue of $1,000 per call, you are going to need 1,000 calls to reach $1,000,000 in sales.
If you want to serve the traditional and celebration of life markets, at an average revenue of roughly $7,500 per call, you need 133 calls to reach $1,000,000 in sales.
The key is that you have to pick your niche because you can’t do both. You do not have the resources required to win in two very different markets.
After you pass the $1,000,000 mark things tend to change. You’ve passed through the crazy hustle phase and you can enter into a period of more controlled growth.
But the fuel required to grow is not revenue, it’s bottom line profits. It’s the cash that you can accumulate in your business that gives you the flexibility to make significant strides.
One of my clients was around $1,000,000 in annual revenue point when we first started working together four years ago. Today he’s right around the $2,000,000 mark. He’s doubled his revenue in four years!
How did he achieve this type of growth? Well, he didn’t do it by just hustling more.
He looked at the expense side of the business and made some good decisions that helped his bottom line. Soon there was enough cash in the business to fund some big moves.
For example, he bought a crematory and started a direct cremation business so he could serve that segment of the market. Then he built a location in a neighboring community so he could serve yet another market. Plus he made a handful of other really good decisions all resulting in growth in his top line revenue and bottom line profits.
Now as we’re getting ready to make the leap from two to five million, what should we focus on?
Calls.
Wait! Didn’t I just say you should NOT focus on calls?!?!
Actually, I said most funeral home owners shouldn’t focus on calls. That’s because most funeral businesses do not have the ability to serve the entire market.
My client has the ability to win in the traditional market, the celebration of life market, the direct cremation market, and even the pet market. Since he has something to offer each segment of the market now it makes sense to focus on his percentage of the total market.
Consider McDonald’s, the fast food chain. They don’t measure success by their percentage of total restaurant meals because they only serve one segment.
Now consider a company like Marriott International. They operate under over twenty different brands ranging from The Ritz-Carlton to Fairfield Inns. In their case, it makes sense to measure their success as a percentage of the overall travel industry because they have something to offer every traveler.
Growing a funeral home business requires you to shift your focus along the way.
Stage 1 – under $1,000,000 in sales – pick a niche and focus on revenue
Stage 2 – $1,000,000 to $2,000,000 – focus on profits and use those profits to enter multiple niches
Stage 3 – over $2,000,000 – focus on call volume as a measurement of your overall market share
There is another stage that happens around the $10,000,000 mark. That’s the point at which you dominate a particular geographic market and it’s time to look at other markets to enter.
For example, if you’ve become the dominant player in a city like Columbus, Ohio. Maybe it’s time to look at Cincinnati or Cleveland as your next growth opportunity.
The key to success at that level…process. You need to have a clear set of processes that clearly define exactly how every element of your business should work. People will come and go, but processes can build an empire. That’s a lesson both McDonald’s and Marriott learned decades ago.
Remember, what you focus on grows. Focus on revenue, then profits. Eventually you can get back to focusing on calls but only when you have the ability to serve every segment of today’s funeral market.
Until next time
John
